I'm 67 with $25,000 saved for retirement, but I just got a big pay raise. Should I claim Social Security now while I'm still working?

By Alessandra Malito

'I don't have a financial adviser because no one's going to take $25,000'

Dear MarketWatch,

I am 67, and have not yet taken my Social Security benefits.

I am still working. In fact, I got a $30,000 raise in July 2023. I am trying to save for retirement. With my new salary, I can afford to put more into my government savings plan, but of course, I know I will never catch up on all the years I couldn't contribute. I will receive a pension from my government agency.

I thought I would maybe take my Social Security now, pay my bills with that, and take money from my paycheck to put in my government savings plan. I am allowed to contribute up to the amount of $30,000 a year, as a pretax catch-up. I have $25,000 in my government savings plan. It's not very much, but I am saving. I don't have a financial adviser because no one's going to take $25,000 as a total investment - it would need to be much more than that.

Can you make any recommendations?

Trying to Save

Related: 'We live frugally': I'm 54 and my husband is 64. We have a $4 million net worth, but I'm not working. How should we navigate our retirement?

Dear Trying,

You're trying and that's significantly better than giving up on your retirement savings goals - please remember that.

As for your Social Security, the good news is you're past your Full Retirement Age, so you'd get more than 100% of the benefits you're owed. The iffy news - while you would get more in benefits, if you're still working, you'll have to pay more for that money, too.

There is no rule that says you can't claim Social Security while still working, but you should consider the impact it could have. For people who are under Full Retirement Age, their benefits can be temporarily reduced (although they would get that money back). This does not apply to you since you are past FRA, but it is important to note for any fellow readers who might not have reached that milestone yet.

What will impact you, however, are taxes. If your combined income, which constitutes as any earned income plus 50% of your benefit, is between $25,000 and $34,000 per year for single filers or between $32,000 to $44,000 a year for married individuals filing jointly, Social Security benefits may be taxed up to 50%. For single filers with an annual combined income of more than $34,000, or more than $44,000 for individuals married filing jointly, the percentage of benefits taxed goes up to 85%, according to the Social Security Administration.

You mentioned your raise was $30,000, and that you are allowed to put up to $30,000 in your government plan. If you were living comfortably prior to your raise, consider putting more into your retirement plan, because you might not feel it as much as you would have prior to the raise. Of course, you do need to live, so contribute as much as you can without putting yourself in a perilous situation.

You may not have as much as you would like in your retirement savings account, but you do also get a pension, which is not common these days (at least for workers in the private sector). If you continue to hold out on claiming Social Security benefits, you would get up to 8% per year that you delay until age 70. That extra money can certainly help you pay the bills in the future, and would mean paying less in taxes now.

What matters most is what you're doing now to take care of yourself in the future. There are so many reasons people aren't able to contribute to their retirement plans - the cost of living, raising a family, education, health expenses, emergencies and so on. That you're doing the numbers now and you're still working (and with a raise, no less) puts you in a good spot to optimize your strategies for your later years.

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Have a question about your own retirement savings? Email us at HelpMeRetire@marketwatch.com

-Alessandra Malito

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05-11-24 1102ET

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